Price vs. Interest Rate: The One Chart to Check Before You Buy a House or Car

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Everybody wants to talk about interest rates. Almost nobody wants to talk about price. In this video I put both side by side, show you the inflation chart the headlines leave out, and run the real numbers on a $400,000 house so you can see which one actually decides what you pay.

If you're carrying credit card, car or mortgage debt right now, this is the decision that either sets you back three years or moves you forward. Here's the math, no hype.

What you'll learn

• Where rates actually sat after the September 2024 Fed cut — credit cards, personal loans, car loans and mortgages
• Why the one-year inflation chart makes things look fine and the three-year chart doesn't
• Why "inflation came down" does not mean prices came down
• The total cost of a $400,000 house at 7% versus a $300,000 house at 7%
• Why a lower rate on an inflated price still loses

Rates barely moved after the Fed cut

The Fed dropped half a percent — 50 basis points — in September 2024, and here's what that actually did. Credit cards went from just over 24% to about 24%. Personal loans stayed around 21%. New car loans were around 10%, used car loans around 14%. Mortgages sat around 7%, and remember mortgages aren't really tied to the Fed rate anyway — they track the 10-year Treasury more closely. So rates dipped a little. You usually don't see a big drop. Keep that in your head, because the headlines will tell you rates are "dropping and dropping."

Prices didn't move either

The average new car price went from $48,750 in 2023 to about $48,350 in 2024. That's roughly a $400 drop on a $48,000 car. Homes moved about as much. So if rates barely fell and prices barely fell, what exactly changed? Nothing that matters to your payment.

The one-year chart vs. the three-year chart

Here's the chart people should be looking at. On a one-year view — August 2023 to August 2024 — inflation goes from just under 4% down into the mid-3s and then below 3%. Everybody cheers. Inflation is "low."

Now stretch that same chart to three years, back to August 2021. You see it climb from about 5% all the way up near 9%, then fall back toward 4%, then to where we are now. And go back ten years — 2017, 2018, 2019 — you'll find stretches of zero inflation and readings in the ones and twos.

Here's the part that matters: a low monthly inflation number only means prices are rising slower. It does not mean the increases went away. Those price jumps from 2021 and 2022 are still baked in — in homes, in cars, and in everything you put in your grocery cart.

The $400,000 house example

Housing is running roughly 30% overvalued versus pre-pandemic prices. So the $400,000 house you're looking at today was about a $300,000 house a couple of years ago.

• $400,000 at today's ~7%: about $958,000 in principal and interest over the life of the loan — before taxes and insurance.
• $300,000 at that same 7%: about $718,000.
• $400,000 at 5%, a rate that would be great by historical standards: still more than the $300,000 house at 7%.

That's the whole point. Price is doing the heavy lifting, not the rate. And by the way, 6% is a good mortgage rate historically. The 2% and 3% era was the anomaly, not the baseline. If prices haven't come down, who cares what the rate is?

Key steps

1. Before you shop, pull up the three-year inflation chart, not the one-year version.
2. Compare today's price on what you want to its pre-pandemic price. That gap is your real cost.
3. Run total interest, not just the monthly payment, on the mortgage calculator or the auto loan calculator.
4. Compare that number to what the same money would do against your 24% credit cards using the credit card payoff calculator.
5. If you're way overpaying on price, wait. Use the time to kill high-rate debt and track it with the Debt-Freedom Tracker.

FAQ

If rates drop another point or two, should I buy then?

Not automatically. In the example above, a $400,000 house at 5% still costs more in principal and interest than a $300,000 house at 7%. A lower rate on an inflated price doesn't fix the price. Run both numbers before you decide.

Inflation is under 3%. Doesn't that mean prices are coming back down?

No. A low inflation reading means prices are climbing more slowly. The increases from 2021 and 2022 are still in there. That's exactly why the three-year chart looks so different from the one-year chart.

What should I do with the money while I wait?

Aim it at your highest-rate debt. Credit cards near 24% and used car loans near 14% are guaranteed costs you can eliminate. Start with the get out of debt course and see why holding cash alone loses to inflation.